Chapter 1.

Introduction to Taxation ✔ Public Purpose (only) – intended for the

common good
∙ TAXATION – state power, legislative process, ✔ Exemption of the Government –
mode of government cost distribution. exemption: income from its properties
∙ THEORY OF TAXATION – government’s necessity and activities conducted for profit
for funding. (GOCC)
∙ BASIS OF TAXATION – mutuality of support ✔ Non-delegation of the Taxing Power –
between the people and the vested exclusively in congress and is non
government. delegable. Exemption: LGU, President –
∙ Receipts of benefits are conclusively presumed. ∙ fix amount of tariffs, other cases requiring
expedient and effective administration
THEORIES OF COST ALLOCATION and implementation.
Benefit received theory – more benefit, more Constitutional limitations (DEUP-NNFE-NECN-NNTT)
taxes.
✔ Due process of law – neither harsh nor
Ability to Pay Theory – contribute based on oppressive
relative capacity to sacrifice. Aspects:
: Substantive due process – tax must be
ASPECTS: imposed only for public purpose
: Vertical Equity – gross concept; extent : Procedural due process – no
arbitrariness, right to notice and
of ability to pay is proportional to tax base.
hearing. Assessment – made within 3
: Horizontal Equity – net concept; years from due date of filing of return or
consideration of circumstances actual filing (whichever is later)
Collection – made within 5 years
∙ THE LIFEBLOOD DOCTRINE – without taxes, from date of assessment
government would be paralyzed: Taxes – ✔ Equal protection of the Law – equal
essential and indispensable. treatment both in terms of rights
conferred and obligations imposed;
IMPLICATION: applies to taxpayers under same
circumstances.
: doesn’t need constitutional grant.
✔ Uniformity rule in taxation – taxation shall
: tax exemption – claims: construed against be uniform and equitable;
taxpayer : taxpayers under dissimilar
circumstances should not be taxed the
: right to choose object of taxation – same (substantial distinction)
: each class is taxed differently – falling
government : courts not allowed to interfere under same class are taxed the same
(relative equality)
: Income taxation
✔ Progressive system of taxation – tax rates
taxable upon receipt; increase as tax base increases
(consistent with taxpayer’s ability to
deduction for capital expenditures and pay) ✔ Non-imprisonment for non-payment
prepayment not allowed; of debt or poll tax – applies only when the
debt is acquired in good faith (bad faith –
lower amount of deduction is preferred, estafa)
in case claimable expense subject to ✔ Non-impairment of obligation and
limit; contract – honored and shouldn’t be
cancelled by a unilateral government
higher tax base is preferred, in case of
action.
multiple tax bases.
✔ Free worship rule – free exercise of
religion but does not extend to income
from properties or activities that are
∙ INHERENT POWERS OF THE STATE (pg. 4-5) proprietary or commercial in nature
✔ Exemption of the following lands,
Taxation Power – enforce proportional
buildings, and improvements from
contribution
property taxes
Police Power – enact laws to protect well-being
: Religious, charitable and
of the people
educational entities
Eminent Domain – take private property for
: Non-profit cemeteries,
public use after paying just compensation
churches and mosques
∙ SCOPE OF TAXATION POWER (CPUS) –
▪ Doctrine of use: applies only to
comprehensive, plenary, unlimited, and
properties actually, directly, and
supreme.
exclusively devoted to religious
activities, etc.
∙ THE LIMITATIONS OF THE TAXATION POWER
✔ Non-appropriation of public funds or
Inherent Limitations (TIPEN)
property for the benefit of any church,
✔ Territoriality of Taxation – demand tax
sect, or system of religion – government
obligations within territorial jurisdiction;
should not favor nor support any
extraterritorial taxation – encroachment
particular system of religion
of foreign sovereignty.
: however, compensation to
✔ International Comity – all nations
priests, etc. with military,
deemed equal to one another (co
penal institutions, etc. not
equal sovereignty); non-taxing of
considered religious
income and properties of other
appropriation.
governments
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SJDL INCOME TAXATION (Banggawan,2019): REVIEWER
✔ Exemption from taxes of the revenues and
assets non-profit, non-stock educational : involves assessment/determination of the tax
institutions (Doctrine of use) liabilities of taxpayers and collection.
: including grants, endowments, ∙ SITUS OF TAXATION
donations, or contributions ▪ Situs – place of taxation; tax jurisdiction. ▪
: Private educational institutions Situs rules – frames of reference whether tax
– minimal 10% income tax object is within or without the
✔ Concurrence of a majority of all members of jurisdiction.
Congress for the passage of a law granting
: Business Tax Situs – where the business is
tax exemption conducted.
: In withdrawal, only a relative or
quorum majority is required : Income tax situs on services – where service
✔ Non-diversification of tax collections – used is rendered
only for public use.
✔ Non-delegation of the power of taxation – as : Income tax situs on sale of goods – in the
part of lawmaking be vested exclusively in place of sale
Congress
: Property tax situs – in its location
✔ Non-impairment of the jurisdiction of the
Supreme Court to review tax cases – all tax : Personal tax situs – in their place of
cases can be raised to and be finally residence
decided by the Supreme Court of the
Philippines ∙ OTHER FUNDAMENTAL DOCTRINES IN TAXATION ▪
• Appropriations, revenue, or tariff bills shall Marshall Doctrine – “The power to tax involves the
originate exclusively in the house of power to destroy”: an
representatives instrument of police power.
: used to discourage or prohibit
: does not necessarily mean that the undesirable activities or
House bill must become the final law.
occupation. (e.g. SINTAX)
: Senate may propose or concur with : solely for the purpose of raising
amendments revenues – does not include the
power to destroy
: Held constitutional – senate ▪ Holme’s Doctrine – “Taxation power is not
changed entire house version of tax bill the power to destroy while the court sits.” :
used to build or encourage
• Delegation of taxing power to local beneficial activities – grant of tax
government units – constitutional incentives. (e.g. Tax Holidays)
recognition of the local autonomy of LGU ▪ Prospectivity of tax laws
: ex post facto law/law that
retroacts – prohibited by
∙ STAGES OF THE EXERCISE OF TAXATION POWER constitution, unless intended by
Congress under certain
Levy or Imposition justifiable conditions. (e.g. under
foreign occupation even after
: impact of taxation; legislative act
the war)
: enactment of a tax law by Congress – House of ▪ Non-compensation or set-off – cannot
Representatives and The Senate delay payment of tax; not a debt.
Exceptions
: tax bills must originate from House of : Taxpayer’s claim
Representatives. become due and demandable
– recognized by government; a
: However, each may have their own refund was made
versions proposed which is approved by : overpayment of taxes
both bodies. : Local taxes
▪ Non-assignment of taxes
DISCRETION IN THE EXERCISE: (DSDKNSM)
: Contracts executed shall not
‘Determine object of taxation prejudice the right of
government to collect
‘Set tax rates/amount collected ▪ Imprescriptibility in taxation –
government’s right to collect does not
‘Determine purpose of levy – public use prescribe unless the law itself provides
for such prescription.
‘Kind of tax to be imposed
: Prescription – lapsing of a right
‘National and local government due to the passage of time
apportionment
Under NIRC, tax prescribed if not
‘Situs of Taxation collected within:

‘Method of collection ▪ 5 years from the date of assessment

▪ 3 years from the date of return
Assessment and Collection required to be filed, in absence of
an assessment
: incidence of taxation; administrative act of ▪ Doctrine of estoppel – “still the taxpayer’s
taxation fault”
: tax law is implemented by the administrative : error of any government
branch of the government employee does not bind the
government since it is not
 subject to estoppel.

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SJDL INCOME TAXATION (Banggawan,2019): REVIEWER
▪ Judicial Non- Interference
: generally, courts cannot issue
injunction against the
∙ ESCAPE FROM TAXATION – means available to the
government’s pursuit to collect
taxpayer to limit or even avoid the impact of
tax
taxation.
: anchored on the lifeblood
∙ Categories of Escape from Taxation
doctrine A. Those that result to loss of government
▪ Strict Construction of Tax Laws – “taxation is revenue (Ev, Av, Ex)
the rule; exemption is the exception”
: when language of law is clear : Tax Evasion (tax dodging) – any act or trick
and categorical – no room for that tend to illegally reduce or avoid
interpretation, only for payment of tax (e.g. understatement of
application income, overstating of expenses)
: Vague tax laws – means no tax
law; construed against the : Tax Avoidance (tax minimization) – any act
government and in favor of the or trick that reduces or totally escapes taxes
taxpayers – obligation arising by any legally permissible means. (e.g.
from law is not presumed (due selection/execution of transaction that
process) would effect to lower taxes)
: Vague exemption laws –
: Tax exemption (tax holiday) – immunity,
means no exemption law; claim
privilege or freedom from being subject to
for exemption is construed
tax granted by constitution, law, or
strictly against the taxpayer in
contract.
accordance with the lifeblood
doctrine ‘Can be revoked by Congress except
‘Exemption must be those granted by constitution and under
clear and unequivocal. Any contracts’
doubt is resolved against the
taxpayer. B. Those that do not result to loss of government
revenues (ShiCapTra)
∙ DOUBLE TAXATION – occurs when same taxpayer is
taxed twice by same tax jurisdiction for the : Shifting – process of transferring tax burden
same thing. to other taxpayers
▪ Elements of double taxation (O-TPJP) :
Primary elements – same object Forms of Shifting
: Secondary elements – same type,
‘Forward Shifting’ follows the normal flow
purpose, taxing jurisdiction and/or tax
of distribution; common with essential
period.
commodities and services such as food
▪ Types of Double Taxation
and fuel (e.g. manufacturers to
: Direct double taxation – all the
wholesalers, wholesalers to retailers)
element of double taxation exists for
both ‘Backward shifting’ reverse of forward
impositions; discouraged since it is shifting; common to non-essential
oppressive and burdensome. commodities; buyers have market power
‘counter the rule of equal with numerous alternatives
protection and uniformity in the
constitution’ ‘Onward shifting’ any tax shifting in the
: Indirect double taxation – at least one distribution channel exhibits either of the
of the secondary elements of double former forms.
taxation is not common for both
impositions; prevalent in practice. : Capitalization – adjustment of the value of
▪ Impact of double taxation minimized: : an asset caused by changes in tax rates.
Provision of tax exemption – only one
‘Value of mining property decreases
tax law is allowed to apply to the tax
when output is subject to higher tax – form of
object
backward shifting
: Allowing foreign tax credit – payment
made in foreign tax law is deductible : Transformation – elimination of wastes or
against the tax due of the domestic tax losses by taxpayer to form savings to
law compensate for the tax imposition or
: Allowing reciprocal tax treatment – increase in taxes. (e.g. improvement of
reduced tax rates or exemption on goods)
foreign taxpayer if the country of the
same give same treatment to Filipino
non-resident therein
: Entering into treaties or bilateral ∙ TAX AMNESTY VS. TAX CONDONATION – both
construed against taxpayers and in favor of the
agreements – lower tax rates for their
government
residents engage in transaction that are
▪ Tax Amnesty
taxable by both of them
: general pardon – granted by
government for erring taxpayers
: chance to reform and enable fresh start
 – clean slate grounds
: retrospective in application : covers only civil liabilities
: covers both civil and criminal liabilities : applies prospectively to any unpaid
: conditional upon the taxpayer paying a balance – portion paid will not be
portion refunded
▪ Tax Condonation (tax remission) : requires no payment
: forgiveness under certain justifiable

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SJDL INCOME TAXATION (Banggawan,2019): REVIEWER
Chapter 2: Taxes, Tax Laws, and Tax Administration : merely advisory, none of them binding
except to the addressee and may be
∙ TAXATION LAW – any law that arises from the reversed by BIR anytime
exercise of the taxation power of the state.
▪ TYPES OF TAXATION LAWS
: Tax Laws – provide for the assessment ∙ TYPES OF RULLINGS – VAT, International Tax Affairs
and collection of taxes (e.g. NIRC, Tariff Division, BIR, Delegated Authority
and Customs Code, LGU) ∙ GENERALLY ACCEPTED ACCOUTING PRINCIPLES
: Tax Exemption Laws – grant certain VS. TAX LAWS
immunity from taxation. (e.g. Minimum ▪ GAAP – not law but mere conventions of
Wage Law, BMBE Law, Coop. financial reporting; intended to meet the
Development Act) common needs of a vast number of
▪ SOURCES OF TAXATION LAWS users in the general public.
: Constitution ▪ TAX LAWS – special form of financial
: Statutes and Presidential Decrees – tariff reporting which is intended to meet
and customs code specific needs of tax authorities.
: Judicial decisions or case laws – due to
ambiguity ‘In cases of conflict in the preparation
: Executive Orders and Batas Pambansa and filing of tax returns, tax laws shall
: Administrative Issuance - DOF prevail – mandatory’
: Local Ordinances
: Tax treaties and conventions with ∙ NATURE OF PHILIPPINE TAX LAWS – civil and not
foreign countries political in nature; effective even during periods
: Revenue Regulations – Administration, of enemy occupation.
DOF, BIR, BOC
‘Internal Revenue Laws’ not penal in nature, do
∙ TYPES OF ADMINISTRATIVE ISSUANCES not define crime; merely intended to secure
▪ Revenue Regulations (clarifications) compliance.
: Issuance signed by Secretary of
Finance, recommendation of the CIR ∙ TAX – enforced proportional contribution levied
: formal pronouncements intended to by the lawmaking body of the State to raise
clarify – providing details of revenue for public purpose
administration and procedure
: has the force and effect of a law, but Elements of a Valid Tax
not intended to expand or limit; Must (be):
otherwise, void. 1. Levied by taxing power having jurisdiction
2. Not violate constitutional and inherent
▪ Revenue Memorandum Orders ‘RMOs’ limitations
(steps) 3. Uniform and equitable
: issuance that provide directives or 4. For public purpose
instructions, etc. necessary in the 5. Proportional in character
implementation of the Bureau in all areas 6. Generally payable in money
except auditing.
Classification of Taxes
▪ Revenue Memorandum Rulings ‘RMRs’
(exemption) ▪ As to purpose
: rulings, opinions and interpretations of
: Fiscal or revenue tax – for general
the CIR
purpose
: BIR Rulings, cannot contravene duly
issues RMR’s; otherwise, rulings are null : Regulatory – to regulate business,
and void ab initio. conduct, acts or transactions

▪ Revenue Memorandum Circulars RMCs’ : Sumptuary – to achieve

(announcement whenever there are social/economic benefits
issues)
: issuance that publish relevant and ▪ As to subject matter
applicable portions as well as
: Personal, poll or capitation – on
implications – laws, rules, etc. issues by
persons/residents of a particular territory
BIR and others agencies.
▪ Revenue Bulletins ‘RB’ : Property Tax – on personal or real
: periodic issuances, notices, and official properties
announcements of the CIR for the
guidance of the public : Excise or Privilege tax – upon
▪ BIR Rulings performance of an act; enjoyment of
: official positions of the Bureau to privilege: engagement in an
queries raised by taxpayer’s and other
stakeholder relative to clarifications and occupation ▪ As to incidence
interpretation of tax laws
: Direct Tax – both impact and incidence
 of taxation rest upon the same taxpayer pays the tax

: Indirect Tax – paid by any person rather ▪ As to amount

than statutory taxpayer
: Specific tax – fixed amount on per unit
‘Statutory Taxpayer – person named by basis (e.g. kilo, liter or meter, etc.)
law to pay the tax
: Ad valorem – fixed proportion upon the
‘Economic Taxpayer – one who actually value of tax object

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SJDL INCOME TAXATION (Banggawan,2019): REVIEWER
▪ As to rate imprison owner
∙ TAX VS. TARIFF
: Proportional tax – flat/fixed rate tax; : Tax - imposed upon persons, properties, or
emphasizes equality privileges
: Progressive of graduated tax – : Tariff – imposed on imported or exported
commodities
increasing rates as the tax base increase
∙ TAX VS. PENALTY
: Regressive tax – decreasing tax rates as : Tax – imposed for government support; arises
the tax base increase; anti-poor from law
: Penalty – imposed to discourage an act (by
: Mixed Tax – combination of any of the both government and private individuals)

above types of tax ; arises from both law and contracts

∙ TAX SYSTEM – methods or schemed of imposing,
▪ As to imposing authority assessing, and collecting taxes.

: National Tax – imposed by national TYPES OF TAX SYSTEM (pg. 41-42)

government
▪ According to Imposition
‘Income Tax – annual income, gains : Progressive – income of individuals, and
or profits transfers of properties by individuals
‘Estate Tax – gratuitous transfer of : Proportional – corporate income and
properties by a decedent upon business
death : Regressive – not employed in PH
‘Donor’s Tax – gratuitous transfer of ▪ According to Impact
properties by a living donor : Progressive System – emphasizes direct
‘Value Added Tax – consumption tax taxes; cannot be shifted
collected by VAT business taxpayers : Regressive System – emphasizes indirect
‘Other Percentage Tax – taxes; shifted by business to consumers
consumption tax collected by non
VAT business taxpayers TAX COLLECTION SYSTEM
‘Excise Tax – tax on sin products and ▪ Withholding System on Income Tax –
non-essential commodities (e.g. payor of the income withholds/deduct
alcohol, cigarettes, metallic the tax on the income before releasing
minerals) the same to the payee and remits the
‘Documentary Stamp Tax – on same to the government (ability to pay
documents, instruments, loan theory)
agreements, etc. : Creditable withholding tax
‘Withholding tax on
: Local Tax – imposed by the municipal
compensation - estimated tax required
or local government to be withheld by employers against
‘Real Property Tax employees’ income
‘Professional Tax ‘Expanded Withholding Tax – tax
‘Business Taxes, fees, and charges required to be deducted on certain
‘Community tax income payments made by taxpayer
‘Tax on banks, etc. engaged in business (e.g. NRA-NETB)
: Final Withholding Tax – payors are
∙ TAX VS. REVENUE required to deduct the full tax on certain
: Tax – amount imposed income payments: income with high-risk
: Revenue – amount collected of non-compliance (e.g. RA, NRA)
▪ Withholding system on business tax –
∙ TAX VS. LICENSE FEE
: Tax – broader subject; post-activity imposition : when GOCCs purchase goods or
License Fee – emanates from police power; pre services to private entities, the law
activity imposition requires withholding of relevant business
∙ TAX VS. TOLL tax (e.g. VAT, percentage tax) *Benefit
received theory
: Tax – demand of sovereignty
▪ Voluntary compliance system – taxpayer
: Toll – demand of ownership; dependent upon
himself determine his income, reports
the value of property leased
through ITR and pays the tax to
‘Both government and private entities can
government: Self-assessment method
impose toll, but private entities can’t impose tax.’ ∙
: will be reduced by creditable
TAX VS. DEBT
withholding tax
: Tax – arises from law
▪ Assessment or enforcement system –
: Debt – arises from private contracts
government identifies non-compliant
∙ TAX VS. SPECIAL ASSESSMENT
taxpayers, assess and demands
: Tax – imposed upon persons, properties, or
compliance by means of summary or
privileges
judicial proceedings
: Special Assessment – levied on lands adjacent
to a public improvement; non-payment will not PRINCIPLES OF SOUND TAX SYSTEM (acc. to Adam Smith)
 effective administration to encourage
▪ Fiscal Adequacy – sources of compliance: avoiding administrative
government funds must be sufficient to bottlenecks and reducing compliance
cover government costs; tax should costs. (see applications on pg. 44)
increase in response to increase in
government spending
▪ Theoretical Justice – suggest that
∙ TAX ADMINISTRATION – management of the tax
taxation should consider the taxpayers’
system
ability to pay; it should not be oppressive,
‘Tax administration in PH – entrusted to BIR under
unjust, or confiscatory
supervision of DOF’
▪ Administrative Feasibility – tax laws
should be capable of efficient and

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SJDL INCOME TAXATION (Banggawan,2019): REVIEWER
Chief Officials of the Bureau of Internal establishments - articles subject to excise tax
Revenue : 1 Commissioner are produced/kept
: 4 Deputy Commissioners, each
designated: ‘Operations group Rules in Assignment of revenue officers to other
‘Legal Enforcement group duties
‘Information Systems group
1. No more than 2 years – officers assigned in
‘Resource Management group
establishment where excisable articles are
kept
POWERS OF THE BUREAU OF INTERNAL REVENUE
2. No more than 3 years – officers assigned to
(pg. 44)
perform assessment and collection
1. Assessment and collection
3. Not more than 1 year – officers and
2. Enforcement of penalties, etc.
employees assigned to special
3. Administering supervisory and police power
duties
4. Assignment of officers/employees to other
Agents and Deputies for Collection of National
duties
Internal Revenue Taxes
5. Provision of forms, receipts, etc. to proper
officials 1. Imported goods – commissioner of customs
6. Issuances of receipts and clearances 7. and his subordinates
Submission of annual report to Congress and 2. Energy tax – head of appropriate
COC in matters of taxation government offices and his subordinates
3. Receipts of payments of IR taxes authorized
Power of the Commissioner of Internal Revenue
to be made thru banks – Authorized
1. To interpret the provisions of NIRC government depository banks (AGDB)
2. To decide tax cases
OTHER AGENCIES TASKED WITH TAX COLLECTIONS
3. To obtain information of person to effect tax
OR TAX INCENTIVES RELATED FUNCTIONS
collection
4. To make assessment and prescribe : Bureau of Customs (BOC) – collection of tariffs
additional requirement and VAT on importation
5. To examine and determine tax returns : can
be amended within 3 years from filing, - Under supervision of
except notice for audit has been served DOF
6. To conduct inventory taking or surveillance - 1 customs commissioner
7. To prescribe presumptive gross sales and - 5 deputy commissioner
receipts - 14 district collectors
8. To terminated tax period
9. To prescribe real property values : Board of Investments (BOI) – tasked to lead the
‘Zonal Value – values prescribed promotion of investment in PH: assisting Filipinos
10. To compromise tax liabilities and foreign investors to venture and prosper
11. To inquire bank deposits - Supervise the grant of
12. To accredit and register tax agents ‘Failure of tax incentives under
Secretary of Finance to act on the appeal
Omnibus Investment
within 60 days is deemed an
Code
approval’
- Attached agency of DTI
13. To refund or credit internal revenue taxes
- 5 full-time governors
14. To abate/cancel tax liabilities in certain
- Managing head
cases
appointed as vice
15. To prescribe additional
chairman by President
procedures/documentary requirements 16.
To delegate his powers to any subordinate – : Philippine Economic Zone Authority (PEZA)
rank equivalent to a division chief of an office – created to promote investments in export
oriented manufacturing industries in PH
Non-delegated power of the CIR
- Supervise the grant both
1. Power to recommend the promulgation of
fiscal and non-fiscal
rules and regulations to SOF
incentives
2. Power to issue rulings of first impression;
- Registered enterprises
reverse/modify any existing rulings
enjoy tax holiday on
3. Power to compromise/abate tax liabilities
certain years;
Except, (Regional Evaluation Board may
exemption from
compromise)
import/export including
: basic deficiency – 500,000 or less
local taxes
: minor criminal violence - Attached agency of DTI
4. Power to assign/reassign officers to
- 1 director general
 - 3 deputy directors respective Revenue District Offices (RDOs) where
business, etc. is situated
: Local Government Tax Collecting Units –
provinces, municipalities, cities, and
barangays
∙ CRITERIA OF LARGE TAXPAYERS
- Imposed and collect to ▪ As to payment
rationalize fiscal 1. Value Added Tax – at least
autonomy P200K/quarter: preceding year
2. Excise Tax – at least P1M paid:
∙ TAXPAYER CLASSIFICATION FOR PURPOSES OF TAX preceding year
ADMINISTRATION 3. Income Tax – at least P1M annual
: Large Taxpayers – under supervision of Large payment: preceding year
Taxpayer Service (LTS) of BIR national office : 4. Withholding Tax – at least P1M
Non-large Taxpayers – under supervision of annual remittances

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SJDL INCOME TAXATION (Banggawan,2019): REVIEWER
5. Percentage Tax – at least P200K ∙ Return of capital – merely maintains net worth ∙
paid/quarter: preceding year RETURN ON CAPITAL – increases the net worth
6. Documentary stamp tax – at least
P1M/year ∙ Capital Items Deemed with Infinite Value –
▪ AS to financial conditions and results of incapable of pecuniary valuation; received as
operations compensation for their loss; deemed as return of
1. Gross receipts or sales – P1M/year capital
2. Net worth – P3B/year : Life
3. Gross purchases – P800M/year: ‘Life insurance paid to heirs or
preceding year beneficiaries upon death of the insured
4. Top corporate listed and published are exempt from income tax.
by SEC ‘Life insurance collected by employer as
beneficiary from an officer is likewise
Automatic Classification of Taxpayers as Large exempt.
Taxpayers Except: (return on capital)
1. All branches under LTS : excess amount received over premiums
paid upon surrender/maturity of policy
2. Subsidiaries, affiliates, and entities of
: gain realized from assignment/sale of
conglomerates
policy
3. Surviving company in case of merger or
: interest income from unpaid balance of
consolidation
the proceeds of policy
4. Corporation that absorbs operation in case
: excess of the proceeds received over
of spin-off
acquisition costs and premium payment
5. Corporation with authorized capitalization of
by an assignee
at least P300M registered with SEC
: Health – compensation for personal injuries or
6. Multination enterprises with
torturous acts
authorized/assigned capital at least P300M
: Human Reputation – cannot be measured
7. Publicly listed corp.
financially; any indemnity received is deemed
8. Universal, commercial, and foreign banks
return of capital (e.g. slander, alienation of
9. Corporate taxpayer – at least P1M
affection, breach of promise to marry)
authorized capital in banking industries,
etc. 10. Corporate taxpayers engaged in the
production of metallic minerals
∙ RECOVERY OF LOST CAPITAL VS. RECOVERY OF
LOST PROFITS (pg. 65)
: Recovery of lost capital – merely maintains net
Chapter 3. Introduction to Income Taxation
worth
∙ THE CONCEPT OF INCOME : Recovery of lost profits – increases net worth; as
: Subject to tax – best measure of taxpayers’ good as realization of income
ability to pay tax; excellent object of taxation Examples:
: Taxation purposes – taxable concept, “gross : Proceeds of crop or livestock insurance
income” : Guarantee payments
- Taxable item, “items of gross : Indemnity received from patent
income”, “inclusion in gross infringement suit
income”
- Taxable income, items of ∙ REALIZED BENEFIT
gross income less “benefit”, any form of advantage derived by
deductions and exemptions taxpayer that leads to increase in net worth
- Gross income, any inflow of Except:
wealth to taxpayers from : receipts on loan – offsetting effect in
whatever source that net worth
increases net worth : discovery of lost properties
: receipt of money or property – held in
: Elements of Gross Income trust, to be remitted

- Return on capital that “realized”, earned; requires sacrifice from the

increases net worth taxpayer to be entitled of benefit.
- Realized benefit Requisites:
- Not exempted by law, : exchange in transaction
contract, or treaty : transaction involves another property
: increases net worth of recipient
∙ Capital – any wealth or property
 borrowing of money
MODE OF RECEIPTS/REALIZATION BENEFIT (pg.
69) 1. Actual receipt – actual physical taking of
income in form of cash/property ∙ TYPES OF TRANSFERS
2. Constructive receipt – no actual physical 1. Bilateral transfer/exchanges – onerous
taking of income but taxpayer is effectively transactions (e.g. sale, barter); subject to
benefited income tax
Examples: 2. Unilateral transfers – gratuitous transactions
: Offset of debt in consideration for sale (e.g. succession – upon death, donation);
of goods/service subject to transfer tax
: deposit of income to checking 3. Complex transactions – partly gratuitous and
account : increase in capital of a partly onerous; “transfers for less than full and
partner from adequate consideration”
profit of partnership (e.g. Transfer tax – excess of fair value from
selling price; Income tax – excess of selling
INFLOW OF WEALTH WITHOUT INCREASE OF NET price from cost)
WORTH – e.g. receipt of property in trust;

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SJDL INCOME TAXATION (Banggawan,2019): REVIEWER
∙ Entity – every person, natural or juridical ∙ Regardless Since February 2, 1987
of the underlying economic relationship gains or Fathers/mother are citizen of PH
income derived are taxable since each corporation Born before January 17, 1973 of
is a separate entity (e.g. parent and subsidiaries, Filipino mothers
sister companies) ∙ Sales of home office to its branch Naturalized thru law
office – not taxable since they are a same entity : Resident Citizen – Filipino citizen residing
∙ Income between businesses of a proprietor – in PH
taxable upon the same owner; “proprietorship”, : Filipino working in PH
not a judicial entity embassies/consulate offices
: Went abroad under tourist visa
∙ Unrealized gains or holding gains – not taxable : Non-resident Citizen - Citizen staying
since they haven’t yet materialized in an abroad:
exchange transaction - for more than 183 days
- as an immigrant or for
Examples: permanent employment
: Increase in value of: - works and derives
- Investments in equity/debt income
securities - previously considered as
- Real properties held NRC and arrives in PH
(revaluation increment) anytime during taxable
- Value of foreign currencies year
held/receivable ▪ Alien
- Land dues to discovery of : Resident Alien (retains status until he abandons
mineral reserves it or depart from PH)
: Decrease in value of: - alien who came with an
- Foreign currency – immigration visa
fluctuation exchange rates - lives in PH without
: Birth of animal offspring definite intention to stay
: Accrual of fruits in an orchard - who came with definite
: growth of farm vegetables purpose that requires an
extended stay
Exemption: : Non-resident alien
: Income received in non-cash - Engaged in
considerations – taxable at fair value of trade/business: less than
property received 1 year but more than
∙ Rendering of Services – an exchange does not exist 180 days
but does not cause loss of capital; entire - Not engaged: not more
consideration received is an item of gross income than 180 days
: with definite
∙ EXEMPTED BY LAW, CONTRACT, OR TREATY : purpose that
Income of qualified employee trust fund : can promptly
Revenues of non-profit non-stock educational accomplished
institutions ▪ Taxable Estates and Trusts
: SSS, GSIS, Pag-Ibig, or PhilHealth benefits : : Estate – properties, rights, and
Minimum wage and salaries and qualified senior obligations of a deceased person not
citizen extinguished by his death
: Regular income of BMBEs - Judicial settlement:
: Income of foreign governments and treated as an individual
FGOCCs : Income of international missions taxpayer
and - Extrajudicial settlement:
organizations – tax immunity; named and has taxable to heirs
ruling : Trust – an arrangement whereby one
person transfer property to another
∙ TYPES OF INCOME TAXPAYER (pg. 70) A. person which will be held by a third party
Individuals (grantor/trustor – beneficiary – trustee or fiduciary)
▪ Citizen - Irrevocable: an
 individual taxpayer corporations which are subject to special
- Revocable: taxable to tax rules or preferential tax rates
grantor ▪ Other Corporate Taxpayers
- If silent, presumed : Partnership
revocable ‘GPP – not a taxable entity but
partners are taxable individually
B. Corporations – includes partnership except ‘Business Partnership – taxable
GPP and joint venture engaged in energy as a corporation
operations under contract with government ▪ : Joint Venture – other than exempt
Domestic Corporation – organized in venture which are taxable to venturers’
accordance with PH laws (even if share in net income
controlled by foreigners) : Co-ownership – not taxable entity but
▪ Foreign Corporation – organized under to income of co-owner unless income of
foreign law co-owned property is reinvented into
: Resident Foreign Corporation other income-producing properties
(RFC) – operates in PH through
permanent establishment (a branch) ∙ GENERAL RULE: Resident Citizen and Domestic
: Non-resident Foreign Corporation are taxable on income earned
Corporation (NRFC) – does not operate within and without the PH, others are within the
in PH PH only
▪ Special Corporations – domestic/foreign

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SJDL INCOME TAXATION (Banggawan,2019): REVIEWER
∙ SITUS OF INCOME – place of taxation of income;
jurisdiction that has the authority to impose tax PASSIVE INCOME VS. ACTIVE INCOME
upon the income : Passive income – earned with minimal or without active
: Source of Income – activity or property involvement
that produces the income : Active income – arising from transactions requiring a
considerable degree of effort or undertaking
INCOME SITUS RULES (pg. 78)
: Capital Gains Taxation – gain realized on the
TYPES OF INCOME PLACE OF TAXATION
sale, exchange and other disposition of certain
Interest Income Debtor’s residence
capital assets; employs self-assessment method
- Capital asset: not used in
Royalties Where intangible is employed business or trade; other than
ordinary asset
Rent Income Location of property - Capital gains: domestic
stock and real property
Service Income Place where service is rendered
- Taxable whichever is higher
between selling price and
fair market value (zonal
value)
OTHER INCOME SITUS RULES (pg. 79) : Regular Income Taxation – general rule of
A. Gain on sale of properties
income taxation. Covers all active income and
1. Personal Property other income not subject to final tax and capital
: Domestic securities – presumed within gains tax; applies self-assessment method
: Other – earned where property is sold
2. Real Property – earned where property is
located
B. Dividend income from: ∙ ACCOUNTING PERIOD – length of time over which
1. Domestic Corporation – earned within income is measured and reported
2. Foreign Corporation TYPES OF ACCOUNTING PERIODS (pg. 102)
: Resident FC – pre-dominance test: ratio of 1. REGULAR ACCOUNTING PERIOD
PH gross income over world gross income : Calendar Year – from Jan 1 to Dec 31
- At least 50%, portion of - Available for both
dividend corresponding PH corporate and
gross income – earned individual taxpayers
within - Used when taxpayer has
- Less than 50%, entire no actual accounting
dividends earned without book; does not keep
: Non-resident FC – earned abroad books; an individual
C. Merchandising Income – earned where the : Fiscal Year – any 12-month period that ends
property is sold on any day other than Dec 31
D. Manufacturing Income – earned where the - Available only to
goods are manufactured and sold (production corporate income
and distribution) taxpayers
2. SHORT ACCOUNTING PERIOD – less than 12
months
Chapter 4. Income Tax Schemes, Accounting Periods,
Accounting Methods, and Reporting : Newly commenced business – date of start
until designated year-end
∙ INCOME TAXATION SCHEMES – mutually exclusive :
Final Income Taxation – final withholding tax : Dissolution of Business – start of current year
system – withheld at source to date of dissolution (return shall be filed
- Applicable on certain within 30 days for corporate taxpayers)
passive income
 techniques used to measure income (pg. 105)
: Change of accounting period by corporate 1. General methods
taxpayers – start of previous accounting up ▪ Accrual Basis – income(expense) is
to designated year-end of new accounting - recognized when earned(incurred)
period (BIR approval is required – not regardless of when received(paid).
automatic) ▪ Cash Basis – income(expense) is
recognized when received(paid).
: Death of taxpayer – star of calendar year
TAX VS. ACCOUNTING CONCEPTS
until death of the taxpayer (accounting
period shall be terminated exactly at the : Advanced income is taxable upon receipt
(services only)
date of death)
: Prepaid expense is non-deductible
- Deducted against gross
: Termination of the accounting period of the
income on date of
taxpayer by the commissioner of internal
expiration
revenue – start of current year until date of
- Contradicts the Lifeblood
termination (ITR and tax shall be due and
Doctrine
payable immediately)
: Special tax accounting requirements must
be followed
∙ DEADLINE OF FILING THE INCOME TAX RETURN :
CALENDAR YEAR – on or before April 15 of the
following year
Hybrid Basis – combination of accrual basis, cash basis
: FISCAL YEAR – on or before the 15th day of the and or other methods of accounting when taxpayer has
fourth month in the same year several businesses that employs different accounting
methods
∙ ACCOUNTING METHODS – accounting

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SJDL INCOME TAXATION (Banggawan,2019): REVIEWER
2. Installment and deferred method (pg. 109) ▪ computed based on
Installment Method – gross income is present value while
recognized and reported in proportion to the discount interest on note
collection from the installment is amortized as interest
sales. income
Available to:
- Dealers of: 3. Percentage of Completion Method –
: Personal Property estimated gross income from construction is
: Real Properties, if initial reported based on the percentage of
payment does not completion of the project.
exceed 25% of selling - Output method:
price (Initial Prescribed by NIRC
Payment/Selling Price) 4. Outright and Spread-out Method – applied on
- Casual sale of non income from leasehold improvement :
dealers of real/personal Outright Method – lessor reports income the
property, when selling FMV of building or improvements whenever it
price exceeds P1000 is completed
and/or initial payment - Perceived as unjust,
does not exceed 25% of abusive and improper
selling price : Spread-out Method – estimated
depreciated value of such
INITIAL PAYMENT: downpayment +
building/improvement at the termination of
installment payments in the taxable year
lease and report as income per year of the
of sale (cash or property)
lease an aliquot part thereof
- cost of improvement x
SELLING PRICE: entire amount which the
(excess useful life over
buyer is obligated; debtor assumes
lease term/useful life of
indebtedness of the property
the improvement)
5. Crop Year Basis – farming income =
CONTRACT PRICE: amount receivable from
proceeds of harvest – expenses of the
buyer; in absence of agreement to assume
particular crop harvested (pg. 117)
indebtedness by the debtor (Selling
- Expenses of each crop
Price – Indebtedness)
are accumulated and
deducted upon harvest
GROSS INCOME: (Collection/Contract
∙ TAX REPORTING
Price) x Gross Profit
TYPES OF RETURNS TO THE GOVERNMENT
1. Income Tax Returns – provides details of the
INDEBTEDNESS ASSUME EXCEEDS TAX taxpayer’s income, expense, tax due, tax
BASIS: Indirect payment added to initial credit and tax still due
payment
2. Withholding Tax Returns – provide reports of
income payments subjected to withholding
tax by the taxpayer-withholding agent
3. Information Returns – do not involve payment
▪ Deferred Payment Method – variant of or withholding of tax; essential to
accrual basis, used when non-interest government tax mapping and evaluation
bearing note is received (pg. 113)
- Gross income NON-FILING OF ANY OF THE ABOVE IS
 SUBJECT TO PENALTIES, FINES, AND/OR 6. PEZA registered and those located w/n
IMPRISONMENT Special economic zones
- Penalty of P1,000 for 7. Government offices – remittance of withheld
each failure not VAT and Business Tax
exceeding P25,000 for 8. Included in Taxpayer Account Management
all failure during a Program (TAMP)
calendar year (due to 9. Accredited importers – required to secure
willful neglect) ICC and BCC

∙ MODE OF FILING INCOME TAX RETURNS GROUPINGS OF TAXPAYES UNDER eFPS (see pg.
119)
MANUAL e-BIR eFPS
FORMS ∙ PAYMENT OF INCOME TAXES – general rule: “pay as
you file”; installment payment of income tax is
DATE ENTRY Manual Electronic Electronic allowed on certain conditions
FILLING/SUBMISSIO Manual Electronic Electronic
∙ PENALTIES FOR LATE FILING OR PAYMENT OF TAX :
N
Surcharge
TAX PAYMENT Manual Manual Electronic - 25%, simple neglect -
failure to file on time
- 50%, “willful neglect” –
notice received
: Interest – computed based on actual days
TAXPAYERS MANDATED TO USE THE eFPS (pg.
divided by 365 days (pg. 122 for examples)
118) 1. Notified large taxpayers
- 20%, until Dec 31, 2017
2. Notified top 20,000 private corp.
- 12%, since Jan 1, 2018
3. Notified top 5,000 individual taxpayers 4.
: Compromise Penalty – amount paid in lieu of
Taxpayer who wish to enter contracts with
criminal prosecutions over a tax violation
government
5. Corp. with P10M paid-up capital

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SJDL INCOME TAXATION (Banggawan,2019): REVIEWER